Roku stock crashes and one analyst warns it’s now ‘dead money’

Wall Street suggests tuning out of Roku (ROKU) after the streaming giant turned in a severe profit warning for 2022 as it invests back into its business.

Shares of the company crashed 25% to $107 in pre-market trading Friday as the Street smashed down the reset button on Roku’s valuation.

“We don’t expect investors to hang on for the ride though. With a big cut to our EBITDA we take a much less optimistic view of Active Account value, so we slash our EV/Active Account-based valuation. We remain Equal Weight given the extent of the pull-back, but see Roku as dead money until proof points arise,” Wells Fargo media analyst Steve Cahall said in a note.

Roku saw slowing growth in the fourth quarter in areas such as active accounts and average revenue per user as people re-engaged with the real world again during the pandemic. The company’s adjusted operating margins also dropped 750 basis points from a year ago amid supply chain disruptions weighing on the margins of Roku hardware.

Here’s how Roku performed in the fourth quarter versus Wall Street estimates:

But Roku’s outlook left much to be desired as the company goes into one of those Amazon-like investment cycles.

For the full year, Roku sees adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) that is about in line with 2020 levels of $150 million. The Street was looking for roughly $535 million in adjusted operating profits.

“As we got through some of the worst uncertainty around the pandemic, we decided that we would continue or we kind of go back to our historical aggressive investment levels. And so, you’re seeing strong investment in the back half of 2021 and into 2022,” Roku CFO Steve Louden said on an earnings call.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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